Liberty Finance: Transforming Islamic Finance with Arbitrum

Liberty Finance: Transforming Islamic Finance with Arbitrum

Liberty Finance: Transforming Islamic Finance with Arbitrum

Jul 5, 2024

A New Era in Islamic Finance

At Liberty Finance (LibFi), we are on a mission to revolutionize Islamic finance. By harnessing the power of decentralized finance (DeFi), we're creating a transparent, inclusive, and Shariah-compliant financial ecosystem.

Our goal is to provide accessible financial services that adhere to Islamic principles while embracing blockchain technology's innovative potential. We aim to bridge the gap between traditional finance and DeFi, ensuring financial inclusivity and ethical standards for all. Here, we take our first deep-dive into the LibFi ecosystem, our guiding principles, and why we’re building on Arbitrum.

The Challenges of Islamic Finance Products

Despite being the only financial system available to millions of observant muslims worldwide, accessing Islamic finance isn't without its hurdles. Many traditional financial products do not align with Shariah principles, which prohibits interest (called ‘riba’ in Islamic finance), and speculative investments (gharar, which translates to uncertainty or risk). This often excludes a significant portion of the global Muslim population from accessing financial services that cater to their religious beliefs. 

Instead, Islamic finance places emphasis on principles such as commodity murabahah, or a cost plus profit basis financing model. Conventional financial institutions face inefficiencies in implementing Commodity Murabahah, as the process requires meticulous coordination with various stakeholders, adherence to Shari’ah-compliant exchanges, and managing large transactions of tangible, auditable commodities.

One of the major issues in implementing commodity murabaha is the inefficiency in the loan approval process, which often involves lengthy timelines and complex documentation, at odds with the rapid accessibility of DeFi products. This is especially problematic for those needing quick access to funds - and one of the key problems LibFi aims to solve. Additionally, the lack of transparency in the Islamic finance lending process can leave borrowers uncertain about the terms and costs of their loans, complicating decision-making and making it hard to compare financial products effectively, or leading to missed profit opportunities.

And the challenge is not just about creating compliant products, but also making them accessible and understandable to a diverse audience, across borders and without barriers to entry based on an individual's financial situation. This is where LibFi is building bridges between these two worlds.

Bridging DeFi and Islamic Finance

Although they might seem initially at odds, DeFi and Islamic finance actually share many core values: such as fairness, transparency, and risk-sharing. For example, DeFi leverages blockchain technology to eliminate intermediaries, reduce costs for participants and give clear terms on transactions, perfectly aligning with the ethical and transparent nature of Islamic finance - but often the underlying assets in DeFi ecosystems are not Shariah compliant.

By integrating DeFi with traditional Islamic finance principles, LibFi addresses the inefficiencies and hurdles of accessing Islamic financial products, offering a more efficient, transparent, and accessible system that still stays true to Shariah principles.

Blockchain technology also provides a level of transparency and trust that is unmatched by traditional financial systems. Every transaction is recorded on a public ledger, reducing the risk of fraud and ensuring that all actions can be audited and verified. This level of transparency is crucial for adhering to Islamic finance principles, which emphasize fairness and clarity in financial dealings.

LibFi’s Features & The Arbitrum Ecosystem

LibFi introduces a suite of innovative features built on the Arbitrum blockchain, designed to cater to both DeFi enthusiasts and traditional Islamic finance investors:

  • - LibFi DEX: A platform for token trading, staking, and yield farming, structured to comply with Islamic finance principles. Users can trade tokens in a transparent and secure environment without the need for intermediaries.

  • - Advanced Trading Options: Features like limit, stop, and trailing orders for precise trading strategies. These tools enable users to manage their investments more effectively, aligning with risk management principles for Shariah compliance.

  • - LibFi Academy - A crucial part of mass onboarding users to web3-enabled Islamic Finance solutions lies in education - sharing the ethical principles of Sharia compliant finance in a simple format, and breaking down the barriers to entry for users worldwide. The LibFi academy does exactly that, educating DeFi and Islamic Finance users alike.

  • - Islamic Finance Lending Platform (IFaas): A groundbreaking platform based on Commodity Murabahah, offering Shariah-compliant lending solutions. This platform addresses the need for ethical and interest-free financing options, making it easier for users to obtain loans that align with their beliefs.

  • - Amana Vaults: Our Amana Vaults allows users to stake $LIBFI tokens and earn a share of the rewards generated by our DEX and lending platform, creating passive income opportunities - one of the first of its kind in the web3 ecosystem.

  • - Firoza Finance: A Shariah-compliant microfinancing protocol launched by Liberty Finance and HAQQ Network. Firoza Finance uses blockchain to offer transparent, secure, and ethical financing for private credit investments, providing accessible funding options while adhering to Islamic financial principles.

LibFi is building on Arbitrum, a Layer 2 scaling solution for Ethereum. Arbitrum is the perfect blockchain for LibFi due to its high efficiency, security, and cost-effectiveness. Arbitrum significantly reduces transaction costs and increases throughput, making it ideal for the high-volume transactions typical in DeFi applications - we’ll explore more about why we’re building on Arbitrum in later articles.

Meet the LibFi Team

Our team is a diverse group of professionals with extensive experience in finance, blockchain technology, and Islamic finance. This unique blend of expertise ensures that LibFi is technologically advanced at the cutting edge of the DeFi ecosystem, while remaining compliant with Islamic principles — and fostering the development of a robust, secure, and Shariah-compliant financial ecosystem.

Our Shariah Advisory team also comprises a prominent Islamic Finance Executive and an accredited AAOIFI Scholar (Mufti), who ensure ongoing alignment with Shariah principles, issuing regular Fatwa, and reviewing operational reports and conducting rigorous audits. You can learn more about our team here.

A New Way to Access Islamic Finance?

Liberty Finance is at the forefront of transforming the Islamic finance ecosystem by integrating DeFi principles and blockchain technology. By addressing inefficiencies and lack of access in traditional Islamic finance, LibFi offers a transparent, efficient, and inclusive platform that adheres to Shariah principles. With a range of innovative features and a commitment to ethical finance, LibFi is set to transform the financial landscape for both Islamic and traditional investors. Join us in our mission to create a more inclusive and transparent financial future!

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